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Abstract:

Journal article
The Time Value of Housing: Historical Evidence on Discount Rates

August 2018
Paper No' :


Tags: consumption behavior; data set; homeownership; housing market; price dynamics; transaction cost; england; london [england]; united kingdom

Most London housing transactions involve trading long leases of varying lengths. We exploit this to estimate the time value of housing – the relationship between the price of a property and the term of ownership – over a 100 years and derive implied discount rates. For our empirical analysis, we compile a unique historical data set (1987–92) to abstract from the right to extend leases currently enjoyed by tenants. Across a variety of specifications and samples, we find that leasehold prices are consistent with a time declining schedule and low long-term discount rates in housing markets. © 2017 Bank of England. The Economic Journal published by John Wiley & Sons Ltd on behalf of Royal Economic Society